ABSTRACT
Free trade and an unimpeded movement of factors is the first best policy in a world which does not have any distortions, but this is only a hypothetical scenario. The real situation is full of market imperfections that may be corrected and/or exploited by the employment of an economic policy (intervention). The rationale for international economic integration can be found in the case where market imperfections exist. When one distortion (e.g. a universal tariff of a country) is replaced by another (e.g. the common external tariff of a customs union) the net effect may be obscure. Theory about regional economic integration (an introverted economic strategy, to a degree) is the analysis of second best situations. It is, therefore, not surprising that general theoretical principles may not be found. What matters, however, is not solely the predictions of theory, but rather what happens in real life.
